Trading Lessons I Learned the Hard Way, Part 10

08/14/2012 10:00 am EST


Ron Wagner

Principal Partner,

Ron Wagner of Revolutionary Trading discusses the lessons he learned from his early days of trading, and how his trading has evolved to become profitable.

Find the previous article here. Start at the beginning here.

Last time I left off with being very selective when choosing your candidates to trade. It wasn’t only about a specific pattern, but also how charts looked as the candles formed. My eyes are now trained to only look for candidates that have a very strict set of criteria for my trading and investing.

Even after all of the work I had put into my trading plan, finding the patterns I liked trading, and applying additional elements to those patterns, I still was not where I wanted to be. I had some great success in all that I was doing, but sometimes my trades didn’t work out as I had expected.

I kept hearing: “The trend is your friend,” “A rising tide lifts all boats,” “Follow the smart money,” and other slogans we are all familiar with. I’m sure I was not alone in my thinking. When I first started trading, I thought all I had to do was fund an account and push a button and I would make money! Right? I mean, really, how hard could it be?

Well, I learned the hard way that having everything in place was still not enough. I had to retrain myself and learn that I needed people to buy above my entry if long or sell after my entry if short. I think we all come to the market thinking we can create our unique style that will just incredibly provide us with great results.

After many false starts and going over my trades each week, I finally realized that I had to “fold in” if I wanted to be really successful. I didn’t like the idea much, because I had always been successful in my previous endeavors, and like Frank Sinatra would say, “I did it my way.” But my way was not working the way I had scripted it.

So, I learned to “Follow the smart money,” recognizing the trends in the market, and this really made a large difference in my trading. Over the years I have developed a high degree of accuracy, and I would have to credit that not only to selecting the right candidates to trade, but also trading them in the right market environment.

Having now worked with literally thousands of traders over the last 12 years, I know without a doubt that most fall into one of two groups. Some develop “analysis paralysis,” and take trades too late with poor timing, and others over-trade and don’t give any credence to what the market is doing. Other factors exist, such as sector rotation, and I will touch on that subject in a future part of this journey.

The point I want to make is that we can’t just take trades based on a great pattern alone. It is absolutely true that we can be sloppy with our pattern selection and still make money if we are long in a super trending market. But I never wanted to win “lucky.” I wanted to win consistently. In order to do that, I had to completely adjust my thinking.

The majority of our trading time will be when the market is not trending up or down. We have to know what to do during times like that. Trading during those times is actually when I usually make more money. The reason for this is that I like to trade Relative Strength or Relative Weakness selections when the market, at a minimum, will not be hurting my trade.

I really thought I was onto something, and I’m laughing now as I write this. I didn’t know then that the market preys upon the weak and novice. I have since decided I am not going to be the prey or novice any longer.

Lessons learned:

  1. Trade in the direction of the prevailing market environment!
  2. Take trades with Relative Strength or Weakness!
  3. Don’t base your success on lucky trades, and don’t chase after them!

In the next part, I will talk about indicators and what I did to get to even higher level of consistency.

Ron Wagner can be found at Revolutionary Trading.

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